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Saturday, July 12, 2014

Wheat on track for slump

BY LUZI ANN JAVIER AND JASON SCOTT
Bloomberg News

SINGAPORE — Wheat is heading for the biggest slump in three years as the second-largest harvest on record swells stockpiles, easing shortages that drove global food costs to an all-time high.

Prices that plunged 20 percent to $6.3425 a bushel this year in Chicago will probably drop as low as $5.90 before the end of December, according to the median estimate of nine analysts and traders surveyed by Bloomberg.

Supply in the 12 months ending June 30 will expand 5 percent to 684 million metric tons, boosting inventories to the highest in a decade, the London-based International Grains Council (IGC) estimates.

Production is expanding after last year's 47 percent price rise led farmers to plant more grain, while Russia and Ukraine recovered from drought that ruined crops.

Wheat is heading for its biggest annual decline since 2008, when the IGC says harvests reached a record. It is this year's third-worst performer in the Standard & Poor's GSCI gauge of 24 commodities, followed by nickel and cotton.

Harvests are rising in Canada, Russia, Kazakhstan and Ukraine, among the worst hit by last year's weather, according to the IGC, which includes more than 50 nations. While demand will expand 22 million tons, compared with 3 million tons a year earlier, stockpiles will still grow to 202 million tons, the IGC estimates. That's 53 percent more than in 2007-08, when prices reached a record $13.495.

The projected decline in wheat prices would boost prospects for U.S. farmers, the world's biggest exporters, making them more competitive with rivals in the Black Sea region. At $5.90 per bushel, a metric ton of U.S. wheat would cost about $217. That compared with Ukrainian supply priced at $240.50 on Oct. 25, according to UkrAgroConsult, a Kiev-based research company.

Egypt, the largest wheat importer, bought 60,000 tons of Ukrainian wheat at $247.92 per ton in a tender on Nov. 1.

Russia lifted an almost yearlong ban on grain shipments in July and Ukraine eased export quotas imposed to ensure domestic supply after last year's droughts. Russian sales will expand more than fourfold and Ukraine's will almost double, while U.S. exports will slump 24 percent, the most in more than two decades, the USDA forecasts. The department is scheduled to release new predictions Wednesday.

"At those levels, the U.S. wheat will certainly become competitive," said Simon Clancy, the director of brokering at Advance Trading Australasia, which specializes in agriculture. "The Black Sea can only ship so much, and I don't think it can become much cheaper than that. We will again see buying interest for Chicago wheat."

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